THE PACIFIC RIM

AMC Begins Making Jeep in China

PEKING — American Motors on Thursday became the first U.S. car manufacturer to begin producing its vehicles in China, rolling Jeep Cherokees off an assembly line here for sale in what one company official called "the world's largest potential market."

In ceremonies to mark the start of production, AMC executives and their Chinese partners said they hope to manufacture 750 of the four-wheel-drive Cherokees this year, about 4,500 next year and at least 40,000 a year by 1990. They hope to eventually sell the cars not only in China but also elsewhere in East Asia.

AMC holds a 31.4% interest in the Peking Jeep Corp., a joint venture established two years ago. Its Chinese partner is the Peking Automotive Works, a state enterprise that has been producing its own vehicles here.

The First Time

"Today's ceremony marks the first time that a U.S.-designed, state-of-the-art, world-class vehicle has ever been built in China," asserted J. Cappy, AMC executive vice president, at a banquet here Thursday.

One European car manufacturer, Volkswagen, has already entered into a deal to produce passenger cars in Shanghai, and Fiat and Peugeot are both assisting Chinese companies to manufacture trucks.

Executives of both General Motors and Chrysler have begun to study the possibility of producing vehicles in China, but AMC is the first American firm to actually do so.

AMC officials acknowledge that the start-up of the China operation has not been entirely smooth. P. Jeffrey Trimmer, general manager of the company's East Asia operations, called the Jeep venture here "a continuing adventure."

Earlier this month, during the first trial run at the Peking plant, a Jeep Cherokee had to be pushed off the assembly line because it could not be driven, company sources say. "When they hooked up the engine and transmission, they forgot to tighten the clutch," one AMC official said.

20-Year Agreement

American Motors does not have any agreement with the Chinese permitting it to convert profits earned in renminbi, the Chinese currency, into foreign exchange. As a result, company officials acknowledge, their chances of getting profits out of China and back to the United States depend largely on the extent to which Peking Jeep can eventually export either cars or parts to other Asian countries.

"We are not in this for short-term profit building," Cappy said at a news conference Thursday. "We have a 20-year agreement."

AMC officials said that, for now, they plan to use the profits in renminbi earned from the sales of Cherokees within China to increase their equity stake in the company to 49%.

Labor costs for the new Cherokees are extraordinarily low by American standards, but extraordinarily high for China. According to Chinese sources, the average wage for the 4,000 workers at Peking Jeep, including bonuses and other extras, was about 160 to 190 yuan (about $55 to $65) a month last year and has been raised to about 210 yuan (about $72) a month this year.

"That's more than the head of a department makes at the Foreign Ministry," one Chinese visitor at Thursday's ceremonies remarked.

AMC said the venture will contribute to employment both in China and in the United States. Asked how it would contribute to U.S. employment, Trimmer said the Peking plant will use auto parts made by AMC in America. "We're going to be shipping (parts) here for many, many years," he said.

Raise Local Content to 70%

Wu Zhongliang, chairman of the board of Peking Jeep, estimated that, at the outset, 12% of the content of the Cherokees will originate in China. He said he hopes that by 1988 the local content of the Cherokees will be raised to about 70%.

Within China, the principal competition for the Cherokees will be Jeep-type vehicles imported from Japan. Trimmer said he believes that even at the 1990 production levels, selling the Cherokees within China will be "a piece of cake."

His comment was supported by AMC's Cappy, who called China "the world's largest potential market."

Company officials would not say Thursday how much the Cherokees will sell for in China. They said they are waiting for government approval before announcing how much the cars will cost.